AGRILIANCE HAS EYES PEELED FOR "WIN-WIN" PARTNERSHIPSbyDavid HestMay 2006When NAMA's AgriBusiness Leader of the Year George Thornton took over the reins at Agriliance, he brought a sense of urgency that the company must address the rapidly changing agricultural supply industry to enable it to maximize benefits to its customers.

That meant being open to taking new approaches to working with customers to strengthen their mutual buying power. The result has been a growing number of strategic alliances that have taken Agriliance and its partners into new business territory.

"I think sometimes the cooperative sector is a little more laid back in terms of addressing changes in the marketplace," Schroeder says of the change that Thornton's sense of urgency engendered. "Bringing in an individual from outside the co-op system encouraged us to move aggressively to gain efficiency."

"George was the driver in seeing the change in the distribution and channel strategy that was being chosen by some entities and sometimes being forced on the marketplace," adds Jim Blome, vice president, Coastal Region sales.

With Thornton's support and encouragement, Schroeder and Blome have led the charge in forming a number of joint ventures. Here is a look at two successful alliances that have served as role models for extending this strategy as new opportunities have been and continue to be identified.

AGRI-AFC BLENDS RETAIL, WHOLESALE ENTERPRISES

Once upon a time, Agriliance and Alabama Farmers Cooperative (AFC) were competitors on the retail front, but had a customer/supplier relationship on the wholesale end of their businesses. Depending on which side of their businesses you considered, there was a decided imbalance of marketplace power, in one company's favor or the other.

AFC, a regional co-op, had 80 retail locations operated by 47 member co-ops in Alabama and the Florida Panhandle under its wing. Agriliance, with eight Alabama retail locations, was struggling. But AFC, with $40 million in crop protection sales, was dwarfed by Agriliance on the distribution end of the business.

Beginning in September 2003, the companies began working under the same umbrella with the formation of Agriliance-AFC, LLC (Agri-AFC). The limited liability corporation which operates both retail and distribution businesses in Alabama, with each of the owner companies sharing profits equally.

"As markets grew and became more competitive, we decided that it would be better for us to switch from competing with a wholesale customer to working with AFC," explains Blome, chair of the Agri-AFC board of directors. "We matched our buying power with their market access - matching strength on strength."

The result of combining strengths is a company that has 60 percent of the crop protection chemical market share in Alabama and about 50 percent of the fertilizer business.

"We are not market-share-driven," points out Roger Pangle, AFC chief operating officer and a member of Agri-AFC board. "We are more profit-oriented. We are more competitive now. Any profits we make come back to our member co-ops. It has been a real good thing for us."

Becoming more efficient was a critical factor in the decision to join forces, Blome agrees.

"We went from a three-step distribution chain to a two-step distribution chain," he says. "We took a set of margins out between us and the grower. Our goal was more about ensuring a global cost position, making sure the co-ops were buying right, than to maintain or grow share. It was much more about an improved profitability picture than increasing market share. But if you have the first, the second should occur."

The new LLC put the AFC member co-ops in a much stronger position to earn manufacturer rebates, Pangle points out. "With only $40 million in chemicals, we didn't warrant a lot of rebates," he says. "We missed a lot of programs. After the LLC was formed, we became a super-dealer. Now all of our dealers can capture maximum rebates and be more competitive."Contemplating the joint venture wasn't without its concerns, but the transition to the new enterprise went well.

"Blending cultures and philosophies and putting the management team into place were the most challenging," Pangle says. "It didn't come without a little grief, but we expected that. Our organization's success has come because we have folks who have the flexibility to change and understand the vision."

Agri-AFC includes the production agriculture portions of AFC, including fertilizer, crop protection products and seed. It does not include AFC's large nursery business, Bonnie Plant Farm, or its Anderson's Peanuts and Currie Gin units. All AFC locations have continued to operate, though a few of the Agriliance retail locations have been closed. Former Agriliance retail location employees have become co-op employees.

AFC board members and managers were heavily involved in the planning and decision-making process, which was critical to making the new venture work, Pangle says. Agri-AFC's eight-member board sets the tone, with each of the owners appointing four members to the board.

"There was fear of losing our identity and having someone else call the shots," Pangle recalls. "These haven't been a problem. We're pleased with the LLC and Jim Blome and George Thornton and the insight they have given our new organization. This is a win-win for us and for Agriliance."

"Agri-AFC has been a blazing success," Blome agrees. "We would do it all over again. And we have," he says, noting that Agriliance began operating a similar joint venture with the Oregon-based regional co-op, Wilco Farmers, in January 2006.

PARTNERSHIP CAPITALIZES ON GLOBAL FERTILIZER TREND

A dramatic increase in fertilizer imports in recent years has put the spotlight on an aging fertilizer handling and storage infrastructure in the U.S. It also has placed a focus on the need to improve transportation efficiency and to increase the ability to warehouse large amounts of fertilizer.

Upgrading the infrastructure offers the potential for a big payoff. But making the investment has been a challenge for distributors, wholesalers and agricultural retailers operating in the intensely competitive marketplace of the early twenty-first century.

That was the environment facing four northwestern Iowa retailers when talks got underway with Agriliance in 2004 to explore joining forces to solve their mutual dilemma. By the fall of the year, ground had been broken for a new 40,000-ton dry fertilizer hub facility at Alton, IA. By the spring of 2005, the $5 million hub was up and running.

Sounds simple, but putting the deal together took lots of behind-the-scenes work - and the vision that a joint venture would benefit all the entities, even though several of the retailers are competitors.

"One of the biggest challenges when working with multiple parties is getting everybody on the same page," says Schroeder, who represented Agriliance in the talks. "To get competitors together can be especially difficult. It just takes a little bit of time and education."

"At first, I was a little skeptical, and some of our board members were, too," recalls Ken Ehrp, board president of the jointly owned facility, called Northwest Iowa Agronomy LLC, and general manager of Farmers Co-op Society, Sioux Center, IA.

"It was new for all of us to do something together. But we knew we had to do something. We could see that a lot of our existing fertilizer plants needed repairs. And our customers had been expanding at a rate faster than we had been. We knew we had to gear up to get fertilizer to the farmer in the timely manner. In the end, we felt we had better swallow our pride and make a good business decision."

"Typically, the facts overcome the emotion," observes Schroeder. "By working together, they could see they would be able to solve a problem that none of them could have solved by themselves."

Since the fertilizer hub came on- line, it has turned out to be a good business decision indeed. In the first spring of operation, 47,000 tons of fertilizer were moved through the facility. And last summer, through smart purchasing, it was able to lock in most of the owner retailers' fertilizer needs for the 2006 season - prior to last fall's Hurricane Katrina-induced run-up in fertilizer prices.

Before building the facility, the owner retailers wouldn't have had the capacity to store nearly a season's worth of fertilizer. And they may have been less likely to have capitalized on what turned out to be an excellent buying opportunity.

According to Schroeder, a former general manager of a cooperative in Nebraska, the efficiencies inherent in the hub plant allow the retailers to be more competitive because of a lower cost structure, compared to operating separate, smaller facilities.

Ehrp says the new facility, which sits on a railroad siding capable of handling 115-car unit trains, is operated by a staff of four, compared to a workforce of nine that operated three older, smaller fertilizer plants, which have since been closed. The new plant can unload up to eight railcars an hour, and can blend 200 tons of fertilizer an hour. The three shuttered plants had a combined blending capacity of about 60 tons an hour. "We invest a lot less in labor per ton of fertilizer," Ehrp says. "We believe this efficiency will be critical to our business down the road."

The new hub facility has helped Agriliance boost its efficiencies as well, says Schroeder. The company has been able to serve its wholesale customers more efficiently, and because it has a collaborative business with key retailers, it has a better fix on customer needs.

"Given the consolidation at all levels, and contraction of margins over time, we think it is imperative to partner with our retailer customers as much as possible, so that we can take out costs," he says. "Being tied into the retailer also helps ensure business and brings us closer to the farmer. When you are a strategic partner, you are closer to the actual acre and have a better feel in terms of forecasting customer needs."

Northwest Iowa Agronomy is one of several similar joint ventures Agriliance has formed in recent years. The company also has partnered in Loomis Crop Nutrients, LLC, Loomis, NE; Southwest Crop Nutrients, LLC, Ensign, KS; and Templeton Crop Nutrients, LLC, Templeton, IA, whose hub facility will be completed this summer.

Agriliance also has helped spur construction of other hub facilities via "put through" agreements, which are agreements to move a specified amount of crop nutrients through plants to supply wholesale customers. "This helps pay for operating costs and has helped make these projects viable," he says.

The broad range of alliances with customers have been enhanced by Agriliance's deepwater port facility in Galveston, TX, which funnels imported fertilizer to the western corn belt and plains. The facility, which Agriliance began operating in August 2004, recently was ex-panded through the addition of a 50,000-ton warehouse.

"In my mind, in all of this, we are trying to create win-wins," says Schroeder. "The more we can collaborate with our customers with the idea of providing the most effective marketing to our customers, the better." AM